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Lending startups vulnerable to Covid-19 slowdown - report

Lending startups vulnerable to Covid-19 slowdown - report

While some parts of the European fintech scene, such as lending, are vulnerable to the economic fallout of the Covid-19 pandemic, others, including payments, have a tough but defensible position, says a new report.

The report, published to coincide with the launch of a European Startups project backed by the EC, offers an overview of where the continent's tech startup scene is as it faces up to the carnage caused by the virus.

The report puts VC-backed startups into four buckets: those for which the crisis is a net positive, those that have a defensible position, those which are vulnerable, and the most negatively affected.

Lending companies such as Trussle, LendInvest and Pretto fall into the "vulnerable" category, meaning that they are affected by the crisis as customers struggle to make payments, and will need to cut costs.

Other fintech sectors, such as payments, are better placed to weather the storm from "defensible" positions, although they will face operational challenges, shrinking lead pipelines and heightened cash awareness.

Outside of the current crisis, fintech is the most promising tech sector in Europe, with 45 unicorns and 59 future unicorns, says the report.

Overall, the European tech startup scene is starting the crisis from a position of strength. Since 2013, there have been EUR223 billion worth of VC-backed exits, which has also helped to create a profitable and sustainable ecosystem, and give VCs more confidence.

Dealroom data shows that venture capital funds made fewer investments in March, but with EUR2 billion invested this was not exceptionally low. Further clarity around the impact of the pandemic on VC investing will become clearer in subsequent months.

Meanwhile, separate research on the UK startup scene paints a worrying picture for companies unless further government support materialises.

ProSapient surveyed 277 startup execs, finding that they are now expecting revenues to fall 47% as an impact of Covid-19. More than half only have cashflow to last a maximum of six months and furloughs are set to be common.

Jordan Shlosberg, proSapient, says: "Start-ups are largely ineligible for the government-backed bank loans. And most founders have already bet the majority of their personal wealth on their businesses and are in no position to use any remaining assets as collateral to access further funding.

"With so much economic and social potential at stake, it is imperative that the UK government fully supports this generation of entrepreneurs. Policymakers have only days to make policies that will have multi-decade implications for millions of people."

Comments: (1)

A Finextra member
A Finextra member 23 April, 2020, 22:07Be the first to give this comment the thumbs up 0 likes

Is there a link to the report?